PLASCOM INDUSTRIES LLP,KOLKATA vs. THE INCOME TAX OFFICER, WARD-1(3), GUWAHATI

Plascom Industries LLP iv) The assessee has also not given explanation/write-up/justification and supporting evidence to show that the provisions u/s 801E(5) of the IT Act do not hit its claim of deduction u/s, 801E of the I.T Act. In view of the above, kindly explain as to why it should not be held that you do not fulfill all the conditions mentioned u/s.80IE of the I.T. Act and accordingly your claim of deduction u/s.801E of the I.T. Act amounting to Rs.6,35,35,087/- should not be rejected and brought to tax. Please ensure that your reply should be presented systematically and with supporting documentary evidence b) The assessee has submitted statement of purchase and sale of goods to related parties in given format. However, the assessee has not submitted any justification to show that said transactions are comparable with similar transactions with unrelated parties in the market with assessee firm along with supporting details and documents. Therefore, please explain as to why 10% of Rs 24,40,20,802/- le. Rs.2,44,02,080/- should not be disallowed as over valuation of sales and undervaluation of purchase from related parties transactions and reduced from the claim for deduction u/s.801E of the IT Act and taxed as regular income as per provisions of section 801E(6) r.w.s. 801A(8) of the IT Act. c) Further, it is also seen from the statement of related party transaction that the assessee firm has taken loan of Rs.1,86,08,294/- from partner Shri Mahendra Kumar Agarwal. However, as per Profit & Loss a/c no interest has been debited as interest expenses and credited to Partners Capital A/c. Therefore, please explain as to why it should not be held that you have not paid interest to inflate the exempt profit and accordingly please explain as to why your claim of deduction u/s.801E be reduced by Rs.22,32,995/- being under valuation of loan taken je 12% of Rs.1,86,08,294/-(unpaid interest to partner) and said amount should not be brought to tax as normal income as per provisions of section 801E(6) r.w.s. 801A(8) of the IT Act d) During the course of assessment proceedings, notice u/s 133(6) was issued to few parties. It is noted that the following party has not responded to the notice. In view of the non-compliance, the transactions with the following parties remain unsubstantiated.

SI. Name Y/N No.

1 SHIV POLYMERS NO INDUSTRIES

It is therefore, requested to furnish i) Complete details in respect of the services rendered by this party with documentary proof, ii) Copy of agreement entered into between the assessee and this party

Plascom Industries LLP iii) Copy of ledger account. Please note that in the absence of the complete documents establishing the above transactions, adverse inference will be drawn. e) In response the notice issued u/s. 133(6), the transaction in respect of the following parties are not matching with the details filed by you.

SI. Name Y/N No. 1 ANUP GARG & OTHERS reco (HUF) 2 ASSAM INDUSTRIAL reco INFRASTRCTURE DEVELOPMENT CORPORATION

3 BDG SHANTI POLYPACK reco PRIVATE LIMITED A copy of the ledger account submitted by these parties are enclosed. You are, therefore, requested to reconcile. Please note that the reconciliation should be backed with documentary proof. Else, adverse inference will be drawn The assessee accordingly, was requested to show cause why the assessment should not be finalized on the above lines and initiate penalty as applicable as per the provisions of the Act. Further, the assessee was also provided an opportunity of personal hearing through VC. Further, the assessee was also provided an opportunity of personal hearing through VC on his request. However, the assessee did not attend the Video conference (VC), scheduled on 12.03.2025, nor the assessee sought any adjournment.”

Plascom Industries LLP 24,40,20,802/- i.e. Rs. 2,44,02,080/- was proposed to be added back and reduced from the deduction claimed u/s 80IE of the Act towards undervaluation of purchase & sales from unrelated parties.

At the appellate stage, the assessee is not filed a single document or clarification to rebut the detailed finding of the AO. The assessee has completely failed to discharge the onus of proof that lay upon it, specially when claiming a large deduction under a specific incentive provision like section 80IE. The silence and inaction of the assessee further affirm the correctness of the AO’s conclusions.

8. The Ld. Counsel for the assessee reiterated the submissions made before the lower authorities and submitted that during the assessment proceedings, the assessee complied all the notices issued by the AO and the assessee is eligible for claim of deduction u/s 80IE of the Act and submitted that this is not the first year of the business the first year of business is year 2017-18 which was examined in scrutiny assessment and the assessee has complied the preliminary requirement to eligibility of deduction u/s 80IE of the Act and no adverse view was taken by the then AO. He further submitted that for AY 2017-18 was assessed u/s 143(3) of the Act by the ITO, W- 1(1), Guwahati, order dated 23.12.2019, Order No. ITBA/AST/S/143(3)/2019-20/1022933659(1) where the entire details were furnished and the AO has examined, since from the first year AY 2017-18 to 2020-21, there was no income, therefore, no deduction was claimed by the assessee and for the subsequent

Plascom Industries LLP assessment years the deduction has been allowed to the assessee while processing the return of income u/s 143(1)(a) of the Act and necessary computation of income were filed in which specific claim was mentioned during the assessment u/s 143(3) of the Act. He further submitted that once the claim of the exemption is exceeded no further disallowance made for the subsequent years till the eligibility period and he relied on the case laws in support of his arguments. He filed written synopsis which is as under:

“The assessee is new industrial undertaking established and started production in assessment year 2017-18. There were losses in first year and following years up to assessment year 2021-22. The taxable income first arose in AY 2022-23 where claim of deduction u/s 80IE was made and was allowed u/s 143(1). In AY 2023-24, in second year deduction u/s 80IE was also claimed. In scrutiny assessment. the various details called for were filed. The Ld. AO finally declined to allow exemption u/s 801E on the following grounds. - Vide 1 para page 9 of the assessment order the only ground for disallowance was that the assessee failed to prove that it fulfilled the conditions laid down u/s 80IE (3) 801E (4) and 801E (5) of the Income tax Act 1961. The assessee disputed the action of the Ld. AO before Ld. CIT(A). The Ld. CTT(A) fixed up the appeal for hearing on three occasions but on none of the occasion clear 7 days' time was allowed to respond. No real time alert was given to the assessee. The appeal was also fixed up within a period of two months only. Thus, the assessee did not receive the notices nor proper time was granted in each of the notice. The assessee therefore could not comply with the notices of the Ed. CIT(A). The Ld. CIT(A) decided the appeal on merits after going through the facts on record and confirmed the action of the AO on the ground that provisions of sec 80E (3), 801E (4) and 801E (5) is not complied with. It is submitted that the assessee fulfilled the conditions laid down under above three sub-sections were on record. The said is explained as under- 80-IE... "(3) This section applies to any undertaking which fulfils all the following conditions, namely (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in the said section; (ii) it is Plascom Industries LLP not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. The provisions of Explanations 1 and 2 to sub-section (3) of section 80-1A shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section." The condition therefore is that the industry should be new and is not formed by splitting up or the reconstruction, of a business already in existence: It is submitted that first year of the business and production was AY 2017-18. The assessment for this year was taken up for scrutiny. The Ld AO made number of requisitions in the said assessment by issue of notice u/s 142(1) and also in the course of hearing. The assessee filed the following details and evidences in support of the return on 5.12.2019 (vie paper book page 75). (i) Industry registration certificate (ii) Factory licence (iii) Trade license (iv) Electricity power installation certificate (v) Pollution Control Board Certificate (vi) Details of purchase of Plant and Machinery (All new) (vii) Factory building and land acquisitions certificate (the land was acquired from Assam Government Industrial (vii) NOC from Local authority (ix) Certificate of date of commencement of production. (x) Copy of approval, licensing and registration of factory from Chief Inspector of Factories (xi) Raw material purchase details (xii) Production capacity certificate (xiii) Nature of industry The assessee was also registered as new industry in Excise, GST/VAT/Service tax the documents of which were also filed in the course of hearing for the assessment year 2017-18 and were also part of the TAR. The copy of the same is also part of the paper book.

Plascom Industries LLP Whether the industry is established by splitting or reconstruction is measured from the plant and machinery installed by the assessee. In the course of assessment proceeding the Ld. AO asked for details of purchase of plant and machinery since the assessee claimed depreciation as well as additional depreciation as can be seen from the computation of income vide paper book page 1 wherein the assessee claimed depreciation of Rs. 2,17,12,594/- (including additional depreciation of Rs.1,16,97,047/- vide copy of return at paper book page27) and business loss of Rs 5,97,371/. The assessee duly filed the same. These were required by the Ld. AO because the assessee claimed additional depreciation on all the machineries installed during the year. The provision of additional depreciation as per sec 32 is as under- See "32 (iia) in the case of any now machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) Provided that where an assessee, sets up an undertaking or enterprise for manufacture of production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia) shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted: Provided further that no deduction shall be allowed in respect of (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person, or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles, or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession of any one previous year, It can thus be seen that additional depreciation can be claimed and allowed only when new machinery or plant is installed. The Id AO has allowed additional depreciation after verification as can be seen form the assessment order u/s Plascom Industries LLP 143(3) wherein the total business loss as determined is at Rs 5,97,371/- and depreciation as claimed and allowed is Rs. 2,17,12,594/- Thus, fulfilment of conditions laid down u/s 80IE (3) of the income tax Act 1961 is proved form the facts on record As regard sec 80IE: (4) the provision is as under- "(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10AA or section 10B or section 10BA, in relation to the profits and gains of the undertaking." It was also on record that no other deduction was ever claimed in any of the years nor allowed. It was on record that there were losses in all years upto AY. 2021-22. The copy of computation and acknowledgement of the return for AY 2018-19 to 2021-22 is annexed in the paper book. Thus, it was available on records that no deduction in violation of sec 801E (4) was ever claimed and allowed. In fact, even though there was no profit in earlier years upto 2021-22 yet the assessee specifically stated that he is covered u/s 80IE as can be seen from computation of income for each year vide paper book. As regard see 80IE (5) the provision is as under (5) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking under this section, where the total period of deduction inclusive of the period of deduction under this section, or under section 80-1C or under the second proviso to sub section (4) of section 80-1B or under section 10C, as the case may be, exceeds ten assessment years. It can be seen that AY 2023-24 is 70 year of production. Thus, there is no violation of sec 801E (5) since, first year has been defined in sec 80IE (7) which is as under (7) For the purposes of this section, (1) "initial assessment year" means the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, or completes substantial expansion; It is to be noted that in first year there was no income so as to claim deduction u/s 801E. The initial year where deduction was allowed was assessment year 2022-23. Therefore, deduction cannot be disallowed in subsequent year. Reference can be made to the judgement of Honble Gujarat High Court in the case of Saurashtra Cement & Chemicals Industries Lid 123 ITR 669 (Guj.) MP High court in Bhilai Engineering Corpa P Ltd., 133 ITR page 687 and that of Hon'ble Bombay High Court in the case of Western Outdoor Interactive P 1.td 349 ITR 309 (Bom) The aforesaid judgements have been followed by Patna Bench of ITAT in LTA. Nos. 85 & 86/Pat/2017 in the case of Rakesh Kumar Vs. DCIT ACTT, Circle 23.07.2024.

Plascom Industries LLP Hence even otherwise also assessee is entitled to deduction u/s 80IE.” 9. He further submitted that in respect of other additions the AO has wrongly computed for making addition which is not tenable as per in the eyes of law.

Plascom Industries LLP from AY 2017-18 to 2021-22. There was a loss, therefore, there was no claim made by the assessee in its return of income separately and there was a scrutiny assessment was made for the AY 2017-18 which is initial assessment year and the AO has accepted the purchase/ sales, therefore, there is no doubt that it is the first year of the eligibility. The activity of the assessee is engage in the manufacturing activity carried out by the assessee which is eligible for deduction u/s 80IE of the Act and we noted from the submission of the assessee that the assessee has satisfied the conditions laid down for eligibility for deduction u/s 80IE(7) of the Act. Therefore, the deduction cannot be denied to the assessee, case laws relied on by the Ld. Counsel supports the case of the assessee noted (supra). Further, the AO has made other two additions towards ALP and notional interest expenditure, these two additions are also in favour of the assessee by Circular No. 37/2016, dated 02.11.2016, therefore, these two additions made by the AO towards ALP and interest expenditure are also part of the business profit and eligible for deduction u/s 80IE of the Act.

Order pronounced on 02.03.2026